The Markets Keep Going Up and You've Missed It!

I work for a major insurance company and almost all businesses that I
deal with are finding it very difficult. I am amazed that the stock market
is doing as well as it is. My wife is on my back because I have stayed
out of the market and kept my money in bank deposits which pay very little
interest. The Elliot Wave Theory has lost a lot of credibility with me.
My wife thinks I'm crazy but I think our government is managing our markets
to create the illusion that everything is getting better. If you have the
time, I would like to know your thoughts on this in a future article.

I imagine there are many who feel or think this way about the economy and
the stock market because there's a real disconnect currently between Main Street
and Wall Street.

So, you've missed out on one of the biggest one year runs of all time and
you're kicking yourself. No one wins all the time and no one captures every
opportunity, that's just life. That feeling of missing an opportunity is a
highly emotional processes that usually forces someone to break down and buy
into a market top or sell into a bottom. Our emotional make up often betrays
us with money decisions because it's driven by fear and greed, and why you
see so many buy high and sell low. It's very important to understand just how
corrosive our emotional make up is before making a money decision. It has to
be a risk/reward decision.

So, you're frustrated you haven't made the big mamu of gains on this run.
I hope that has nothing to do with your financial thought process as to where
we are today and what you're going to do with your money. The past is just
the past, and again, it's a risk/reward decision hence forth.

When I discuss the stock market with my folks and their money, it's really
a two sided question: First, do you believe the bottom in March 2009 spawned
a new bull market for investors, and regardless of down side corrections, you
would expect a long term bull run to make all time new highs? Thus, the buy
and hold strategy is on again and you should have a buy side strategy for that
view.

Or, you view this move higher as a cyclical bull market run in a much greater
bear market, and that the buy and hold strategy is useless until we find a
more discerning bottom in both price and time. In this view, the market is
really for traders and professionals both up and down, and long term investors
should seek to protect their wealth and look for a much better entry point
than after such a huge run. That's how we look at it from a capital deployment
strategy. If you believe this framework than chasing markets up could be unwise.
You have to live with the risk you're actually taking not the gain you've missed,
or you shouldn't be investing.

Why are the markets moving higher?

Nothing goes straight up or straight down for ever. We came off a huge
sell Off. We were over sold and pricing in all the bad news possible into
the March 2009 lows. As investors indentified the world was not going to
end, especially with the back stop of Uncle Sam, they identified a sizeable
trading opportunity. Think of it as a beach ball that was pushed far below
the service of the water, and when released it shoots back up.

There was a lot of cash sitting on the sidelines, and institutional investors
smelled a great opportunity, and it's really the big investors that drive
the markets in a significant manner, and that's really what it's been all
about.

Later in the cycle of this up move, net earnings started to rebound after
massive cost cuts, and while top line growth has not improved, the bottom
line has so for many companies, and the net income growth started to make
companies cheap on a P/E basis and further supported the move higher.

So, this brings us full circle with how we view the markets. After such a
big run to date, are the markets really leading the economy and main street
will catch up and things will improve for all? Or, is it really an oversold
cyclical bull bounce and a further eroding main street will bring the markets
back down?

To me, this is the frame work that each investor needs to ask themselves.
For mom and dad, it's all about risk management, understanding those risks,
and the risk at hand for tougher times do not support us moving money into
the buy and hold strategy. I do trade for them, as that's what we feel the
market is all about. However, that's not a suitable investment strategy for
most, and we do it sparingly, again limiting our risk.

I hope that helps those who feel the same as my reader.

As it relates to Elliott Wave analysis and technical analysis, I have my own
Rosendahl Theory that I just love.

Elliott Wave Theory and Technical Analysis are always right, it's the analyst
that get's it wrong. And if you're following an analyst that gets it wrong
it impacts your view on such techniques. Quite often, analysts get it wrong
because they have a certain view, and they back into their analysis to fit
their view. Sometimes they clearly don't understand what the dominant time
frames are, so they can be very early, or they keep getting bull dozed with
the wrong strategy. Or, they fail to incorporate a more complete set of technical
tools to draw conclusions. That being said, no one gets it right all the
time, and I use Elliott Wave Theory and Technical analysis to increase my
chances of being right, and we need to be flexible enough to understand we
are going to be wrong and have to deal with it. Remember, it's Mr. Market
that dictates the Elliott Wave count not the analyst.

The reader has very important and timely views that I felt needed addressing
and I thank the reader for his email. I personally agree with the reader that
this up move in the market is based on very little fundamentally to support
a long term bull market, and that it's been mostly huge cost cutting and a
short term government back stop. But this money decision is for each to make
on their own, and that doesn't mean the market can't go higher or sideways
for a while from this point in time.

J.D. Rosendahl is not a registered advisor and does not
give investment advice. His comments are an expression of opinion only and
should not be construed in any manner whatsoever as recommendations to buy
or sell a stock, option, future, bond, commodity or any other financial instrument
at any time. While he believes his statements to be true, they always depend
on the reliability of his own credible sources. Of course, we recommend that
you consult with a qualified investment advisor, one licensed by appropriate
regulatory agencies in your legal jurisdiction, before making any investment
decisions, and barring that, we encourage you confirm the facts on your own
before making important investment commitments.